If you check out the economic calendar at Forexfactory.com, for example, you will see that there are generally lots of important economic data announcements being released between Monday and Friday every week.
You will find that some are more important than others (indicated in red), and some will affect certain currency pairs more than others.
For instance, manufacturing data and interest rate announcements from the UK will obviously have a strong impact on GBP-based currency pairs, such as the GBP/USD, for example, whilst US data releases will obviously have a strong impact on the dollar pairs in particular.
So by now you are probably wondering if it’s possible to make money from these economic data releases because you would assume that you can just go long on these pairs when the data is indicating a strong, growing economy (and is better than expected) and go short if the data is worse than expected.
However it is sadly not as easy as this, as many of us have discovered to our cost.
Currency markets do not always react as you might expect them to react, and you can never really predict what is going to happen after the latest economic data announcements have been released.
If the data is positive for the US economy, for example, the USD can strengthen quite considerably in some cases, but it can also trade sideways if these figures were positive but in line with expectations, or even fall if they were already priced in.
There is no surefire way of knowing which way the markets will move, and even if the data is much better (or much worse) than expected, it is often too late to get involved because the price will often fly upwards or downwards before you have had time to react to the data.
Similarly, the price can sometimes fly off in one direction, leading you into a trade, and then quickly reverse a few minutes later as the markets start to digest the data, resulting in instant losses.
So the point is that whilst I’m sure there are some forex traders out there who are skilful enough to profit from these news releases, it is exceptionally difficult to make consistent profits trading these announcements because the markets react in such an unpredictable way.
It certainly isn’t something that you want to get involved in if you are new to currency trading because you are almost certain to lose money.
Indeed it’s not even a good idea to hold any positions at all through some of the more important announcements, such as non-farm payrolls, for instance, because these can ruin any technical analysis that you may have done beforehand.
It’s generally best to stay on the sidelines and trade the markets either before or after the major economic data releases, and not worry too much about all the others because these don’t tend to have a very big impact on the markets.
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